Dear Liz: I've asked a fee-only advisor, a fee-based advisor and a full-service broker about investing in stocks, and their response is always the same — that I should diversify across multiple investment types, consider my risk tolerance and invest regularly to take advantage of dips in stock prices. They tell me that because I'm young I can be more aggressive with my retirement funds to make them grow. But no matter what these folks say, I think the emperor has no clothes: The stock market is one big gambling venture and we've all been scammed into believing otherwise. Frankly, I feel like I'm risking all of my retirement funds by leaving them in the market. (Remember the Reagan-era bust? The dot-com bust? The housing market bust?) Though the stock market seems to be the only game in town (CD rates are 2% or lower, real estate is still risky, who can afford gold?), and those invested in the game tell me I'd be foolish not to play, I feel like I'm between a rock and a hard place. Is this all in my head or do I have a rational basis for my skepticism?
Answer: Remember the Depression? World Wars I and II? The Cold War? The assassination of President Kennedy? Vietnam? Watergate?
Probably not, because you weren't around. Regardless of the setbacks we've faced, however, our economy — and stocks — continue to grow.
Investing in stocks is essentially investing in the productivity of our companies. If you want a graphic representation of that growth, use a search engine to find a chart showing "Dow Jones historical average." You'll see that this market benchmark has had numerous setbacks, many of them serious, but its growth has been exponential. The Dow started 1932 at 100, for example; in the 1970s, it bobbed around 1,000; it started this year well over 11,000.
Yes, there will be scams and scandals and people gaming the system. The fact remains that no other investment has the inflation-beating history or potential that stocks have. If you hope to retire someday, a good portion of your portfolio likely needs to be in stocks.
As for gold, here's another little bit of history you should know. Although it's been on a tear lately, the price of gold still hasn't returned to the peak in value it enjoyed in 1980, once you adjust for inflation.
Check credit score before mortgage shopping
Dear Liz: In my late teens, I bought a fairly new race car despite my minimum wage job. I soon realized that car payments and insurance premiums would require more than what I was being paid. A friend suggested that I should declare bankruptcy and let the bank take the car away. I am not blaming anyone and should have done my research. Now it has been almost 10 years and I am making close to $60,000. I have always paid my bills on time since the bankruptcy, but the bankruptcy remains on my credit report until July 2011. I would like to buy a house soon, but I wanted to start looking now. Even though it's been 10 years, I worry the bankruptcy is going to cost me higher rates and a bigger down payment. Should I wait until August to start applying for a home loan?
Answer: If you've been paying your bills on time since the bankruptcy and have reestablished credit, much of the effect of your filing should have been erased by now. Where you might be in trouble is if you didn't reestablish credit and instead have paid in cash all these years. Then there would be little new, positive information to offset your mistake.
Before you apply for any major loan, you should see where you stand with lenders, and that requires a peek at your FICO credit scores. You can buy two of your three FICOs at MyFico.com for $19.95 each. (Your third FICO score is not available because one of the credit bureaus, Experian, no longer sells FICOs to consumers although it continues to sell them to lenders.)
Checking your own scores does not hurt your credit rating, and it's an essential step so you know what you're likely to face when you start shopping for a loan. Although the picture you'll get is somewhat incomplete, since you can't see your Experian FICO, you'll have at least some idea of whether you'll pay a higher interest rate. Charts at MyFico.com can let you know what interest rate to expect on a mortgage given your scores. A loan professional can give you an idea of how big a down payment you're likely to need.
Liz Weston is the author of the upcoming book "The 10 Commandments of Money: Survive and Thrive in the New Economy." Questions for possible inclusion in her column may be sent to 3940 Laurel Canyon Blvd., No. 238, Studio City, CA 91604 or via the "Contact Liz" form at asklizweston.com. Distributed by No More Red Inc.